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Perspective: Morning Commentary for August 27

By: Mike Castle, Market Intelligence - Fertilizer Analyst

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Guest Commentary by Mike Castle

Senior Commodities Economist

August 27 – The tech sector is breathing a collective sigh of relief, with the tech heavy Nasdaq poised for the biggest gains of the major indexes to start the day after impressive earnings results from Nvidia, Salesforce, and CrowdStrike after yesterday's close. This sigh of relief is also reflected in Wall Street’s fear index, with the VIX falling back below 15 for the first time this week. The dollar has slowly inched higher this week as it claws back portions of last week’s losses and is holding just above unchanged at the time of writing, trading just above the 99.16 level. Treasuries are quietly mixed to start the day, with 2-year yields down very slightly to trade at 4.222%, 10-year yields unchanged at 4.664%, and 30-year yields up slightly to trade at 5.188%. Crude oil is also just above unchanged to start the day, with nearby WTI up roughly 0.7% to trade near $82.50 while nearby Brent is up roughly 0.6% to trade near $87.50. The ags are largely mixed to start the day, with the wheat complex clinging to small gains while corn and soybeans are quietly lower.

Chip giant Nvidia reported record quarterly revenue of $96.2B after yesterday's close, up 18.0% from the previous quarter’s record and more than double the same quarter last year. Their data center segment alone produced revenue of $89.0B, up roughly 117% year-over-year. Adding to the revenue strength, the company’s guidance shows expectations for revenue of $108B in the next quarter, again beating aggressive estimates of roughly $104.2B. All the above has the stock poised for a gap higher on the open, with pre-market trading indicating gains of roughly 6% to start the day. Other notable tech names Salesforce and CrowdStrike are both looking at strong gains to start the day following solid earnings results of their own, alleviating some of the lingering concern in the tech sector regarding software companies being cannibalized by AI.

Headlines yesterday regarding Putin planning to escalate the war in Ukraine sent a shockwave through the commodity sector, with the wheat complex leading the surge, putting in fresh multi-year highs. Wheat futures are clinging to small gains to start the day, but corn and soybeans appear to be taking a breather after their aggressive run, potentially a sign of some managed money traders taking profits. Russia did carry out widespread heavy strikes across Ukraine overnight, including swarms of drones, ballistic, and cruise missiles. From a commodity flow perspective, it’s worth noting that the Odesa region, Ukraine’s traditional top spot for grain and oilseed exports, was among the heaviest targets, reportedly damaging an elevator and heavily disrupting rail traffic. It’s also interesting to note that Russia has ramped up strikes on bridges and other border crossing infrastructure between Ukraine and Moldova in an apparent attempt to hamper Ukraine’s ability to ship their commodities over land, the obvious alternative with shipping via the Black Sea becoming increasingly difficult. This goes both ways, however, with Russian movement severely impacted as well, highlighting the risk to front-end grain movement, brought more into focus as buyers in the region step forward. It will be very interesting to watch the results of ongoing and upcoming tenders for this reason.

Fed officials are arriving in Jackson Hole today for the start of the Fed’s annual economic policy symposium, with the official agenda set to be released tonight, providing a detailed speaker lineup and session topics. What we do know, however, is that new Fed Chair Kevin Warsh is set to deliver the keynote remarks at 9:00 AM Central Time tomorrow morning, livestreamed to an eager audience of traders looking for signs to shape their expectations for Fed policy moving forward. With the Fed entering a new era with an explicit intention of giving less forward guidance, it will be interesting to see how much signal Warsh is willing to give. He reiterated the Fed’s commitment to the 2.0% inflation mandate following the last Fed meeting, despite being above it for five-plus years, and yesterday’s PCE data coming in at 3.7% headline and 3.3% core did little to change the picture of conspicuously above target inflation. Given the importance of the event, however, the near-term focus may be less on the Fed’s next move and more on the longer-term thinking of the new leadership. Sticking with the above topics of the ongoing AI boom, it will be important to hear from Warsh regarding his outlook regarding productivity boosts from technology, as we know he has created a dedicated task force studying the impact of AI on not just productivity but also the labor market.

Rate expectations have cooled notably in the last month, now showing a base case for holding steady at the September meeting and only pricing in one 25-basis point hike by the end of 2026. The graphic below from the Atlanta Fed illustrates this shift. As can be seen, just four weeks ago the highest odds were for a total of 75-basis points of hikes from the Fed by the end of the year. Additionally, the probability of the Fed holding steady at their current target range of 3.50% - 3.75% has nearly doubled in that span. It will be very interesting to see if Warsh’s, or any other speaker’s, comments this weekend will cause any notable shifts to these expectations. The event will continue on Saturday, which can impact Monday’s trade, but the real focus will be on hearing from Kevin Warsh himself tomorrow morning.

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Perspective: Morning Commentary for August 28

August 28 – New Fed Chair Kevin Warsh takes center stage today from the Fed’s annual Jackson Hole Symposium, due to provide his address in the next hour. The market will surely be parsing over his words with a fine-tooth comb, but it’s worth keeping in mind that his stated goal is for the Fed to provide less forward guidance and play a less prominent role, allowing the trade to “play the ball, not the referee.” With that said, my own expectation is to hear largely hawkish language as we did following the July Fed meeting as Warsh doubled down on the Fed’s stated commitment to its elusive 2.0% inflation mandate, which may drive volatility in rate expectations in the short-term, but keep in mind that expectations softened notably in the month that followed his hawkish comments. Not much has fundamentally changed since the Fed’s July meeting: inflation remains above target and the economy continues to expand, but a weak July payrolls report has introduced more concern around the labor side of the dual mandate. Yesterday’s jobless claims did give some renewed signs of resilience in the labor market to potentially aid in providing a permission signal to move rates higher, but I still expect the Fed to emphasize the need for patience. There is obviously plenty more impactful data on both inflation and the labor market sitting between now and the Fed’s September meeting, so much of the focus may also be attempting to discern longer-term changes to Fed strategy and positioning moving forward instead of just their immediate next step.

Mike Castle
Mike Castle
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Perspective: Morning Commentary for August 27

August 27 – The tech sector is breathing a collective sigh of relief, with the tech heavy Nasdaq poised for the biggest gains of the major indexes to start the day after impressive earnings results from Nvidia, Salesforce, and CrowdStrike after yesterday's close. This sigh of relief is also reflected in Wall Street’s fear index, with the VIX falling back below 15 for the first time this week. The dollar has slowly inched higher this week as it claws back portions of last week’s losses and is holding just above unchanged at the time of writing, trading just above the 99.16 level. Treasuries are quietly mixed to start the day, with 2-year yields down very slightly to trade at 4.222%, 10-year yields unchanged at 4.664%, and 30-year yields up slightly to trade at 5.188%. Crude oil is also just above unchanged to start the day, with nearby WTI up roughly 0.7% to trade near $82.50 while nearby Brent is up roughly 0.6% to trade near $87.50. The ags are largely mixed to start the day, with the wheat complex clinging to small gains while corn and soybeans are quietly lower.

Mike Castle
Mike Castle
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Perspective: Mid-Day Commentary for August 26

August 26 – It’s a quiet day on Wall Street despite the tranche of data released today, with focus shifting to chip giant Nvidia’s earnings report due out after today’s close. The major stock indexes are all quietly lower at midday, down anywhere from 0.25% to 0.35% at the time of writing, while the VIX remains muted as it hovers near 15.6. The dollar has firmed through the morning, reflecting some additional hawkish sentiment after this morning’s inflation data, as it trades at 99.17, its highest level since last Wednesday’s selloff. Treasury yields are working higher as well, with 2-year yields up to 4.23%, 10-year yields up to 4.668%, and 30-year yields up to 5.186%. Crude oil has reversed course from this morning’s losses to now trade in the green amid rumblings of more escalations in the Black Sea region as well as a more bullish than expected D.O.E. report this morning, with nearby WTI now up 2.1% on the day to trade near $82.80 and nearby Brent up 0.6% to trade near $87.80. The ags are surging higher at midday, with the wheat complex now leading the way higher amid additional concerns regarding supply from the Black Sea following wire reports stating Putin is planning escalation with Ukraine, though details to this point are scarce.

Mike Castle
Mike Castle
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